Small savings be converted in equity

PTIMay 28, 2006, 11.25am IST

NEW DELHI: The government should give option to investors in small savings scheme to convert their investment at the time of maturity to equity of public sector units to reduce its interest liability and rein in fiscal deficit, industry body Assocham has said.The option would provide investors with a better avenue for re-investment and would also help the government to unlock funds before maturity period hence reducing its expenditure in the form of interest payment and creating a positive impact on fiscal deficit, Assocham said in a release.The total investments in small savings till date is estimated at over Rs 2,10,184 crore, as per a study by the chamber on Options to Convert Small Savings to PSUs equity.The government should also permit investment of a certain percentage of employees provident fund into equity which would generate enough resources to meet the committed liabilities of the fund, it said.The study also suggested that the Department of Posts should park its surpluses in the capital market.The chamber said there should be a ceiling of Rs three lakh on public investments in government promoted savings schemes like Kisan Vikas Patra, monthly income schemes of Post Offices, bonds and senior citizens savings schemes so that the funds above the upper limit be invested in mutual funds.An upper limit would refrain investors from parking all their savings in these instruments, encouraging them to look for mutual funds, the study said."If households are encouraged to invest in mutual funds, it will ensure higher returns for them as mutual funds schemes carry higher returns and also bring higher liquidity in the stock market," Assocham said.Since households continue to invest about two to five per cent of their savings in capital market instruments, there is a need for providing some incentives for retail sector to invest in the markets through mutual funds schemes, Assocham president Anil K Agarwal said.The study asked the government to allow commercial banks to invest 20 per cent of their excess Stautory Liquidity Ratio, which currently works out to be Rs 40,000 crore, for buying leading PSUs equities.The chamber also asked the government to divest its stake in PSUs by offering their shares to banks and retail investors which it claims, would ensure world-class development and expansion and high quality infrastructure.